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Will Earnings Light Up Canopy Growth Stock?

Tom Taulli

Patience can go a long way for investors. Just look at Canopy Growth (NYSE:CGC) stock. Not long ago, investors were frenetically buying up CGC stock.

As Oversupply Skyrockets, Canopy Growth Stock Has Further to Fall

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Yet lately things have not gone so well. Since mid-April, Canopy Growth stock price has gone from $50 to $32.

When it comes to high-flying stocks, investors can usually get a much better valuation if they wait awhile, allowing  the hype to subside. That  strategy  has worked with other marijuana stocks  like Tilray Inc (NASDAQ:TLRY), Aurora Cannabis Inc (NYSE: ACB) and Cronos Group Inc (NASDAQ:CRON), and it may work with Canopy Growth stock as well.

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For CGC, a real test will come when the company reports its fiscal first-quarter results a week from today before the market opens. Analysts, on average,  estimate that its revenue will be $109.23 million, up from $25.9 million in the same period a year earlier. The average forecast calls for a net loss of 38 cents per share.

For the most part, CGC has a pretty good chance of beating the average estimates, mainly because its previous quarterly results, which were disappointing, have tempered expectations.

In fiscal Q4. which CGC reported on June 21, the company’s revenues from recreational pot in Canada dropped to C$68.9 million from C$71.6 million in Q3. Continuing problems with CGC’s supply chain and black market activities weighed on its Canadian recreational sales. CGC also reported a massive net loss of C$323.4 million, or 98 cents per share of Canopy Growth stock.

Things got so bad for  CGC that Constellation Brands (NYSE:STZ) CEO, William Newlands, whose company invested $4 billion in CGC, said he was “not pleased with Canopy’s recent reported year end results.”

In the wake of CGC’s quarterly report, the company’s co-CEO, Bruce Linton, was abruptly pushed out. The  other co-CEO Mark Zekulin, was named interim CEO.

So there was lots of drama! Yet CGC has still been able to get business done since then. Here are just some of its subsequent accomplishments:

  • CGC announced it would pay $3.4 billion for Acreage Holdings (OTCMKTS:ACRGF), which is contingent on the legalization of cannabis in the U.S.. Acreage is the largest vertically integrated owner of licenses in the U.S., and it has licenses in 20 states
  • CGC completed its acquisition of KeyLeaf Life Sciences, which is a bio-product extractor. The deal will be key for capitalizing on the CBD opportunity in the U.S.
  • The company received a new license from Health Canada to grow cannabis in Saskatchewan. This will allow it to ramp up in low-cost production of cannabis materials for high-value products.

The Bottom Line on Canopy Growth Stock

Even though the expectations for CGC’s Q1 results  appear to be reasonable, they could still prove to be too optimistic. Let’s face it, the cannabis market is still in its early stages, so it’s very choppy.

And the leadership change will be disruptive to CGC.  Yet it is encouraging that the company swiftly changed its leadership in the wake of its weak results. While Linton, its fired co-CEO, was a visionary and did an admirable job launching the company, his skill sets are probably not right for an organization that needs to rapidly grow.

In the meantime, CGC has a great deal of capital, which means it has the luxury to make great acquisitions (such as its purchase of Acreage Holdings).

Moreover, the company’s partnership with Constellation also brings other key advantages like global distribution and branding capabilities (Constellation owns many leading beer brands  like Corona Extra, Corona Light, Modelo Especial, Modelo Negra and Pacifico).  So while Canopy Growth stock has issues, CGC still looks well-positioned to be one of the long-term winners in the cannabis market.

Tom Taulli is the author of the upcoming book, Artificial Intelligence Basics: A Non-Technical IntroductionFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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